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Bank of Canada Cuts Interest Rates by 25 Basis Points, Economy Faces Multiple Challenges ⑴ The Bank of Canada announced on Wednesday that it would lower its target overnight lending rate by 25 basis points to 2.5%, raising the bank rate to 2.75% and the deposit rate to 2.45%. This move reflects signs of slowing global economic growth, despite Canada's previous resilience in the face of US tariffs and ongoing uncertainty. ⑵ In the US, while business investment remained strong, consumer sentiment remained cautious, and job growth slowed. US inflation has recently rebounded, and businesses appear to be passing some of the tariff costs on to consumers. Meanwhile, Eurozone growth has moderated due to the impact of US tariffs on trade. China's economy performed solidly in the first half of the year, but growth appears to be slowing due to weakening investment. ⑶ Canada's GDP fell by approximately 1.5% in the second quarter, in line with expectations, primarily due to the heavy impact of tariffs and trade uncertainty on economic activity. Exports plummeted 27% in the second quarter, a sharp contrast to the first quarter's surge in businesses rushing to secure orders before tariffs took effect. Business investment also declined in the second quarter. Consumption and housing activity, however, maintained healthy growth. However, slow population growth and a sluggish labor market are likely to weigh on household spending in the coming months. (4) Employment has declined over the past two months since the Bank of Canada's July Monetary Policy Report was released. The unemployment rate has risen since March, reaching 7.1% in August, and wage growth has continued to slow. Headline inflation (CPI) was 1.9% in August, unchanged from July. Excluding tax factors, inflation was 2.4%. Core inflation has remained around 3% in recent months, but monthly upward momentum has weakened. (5) Given the weakening economy and diminishing upside risks to inflation, the Bank of Canada believes a lower policy rate is necessary to better balance risks. Going forward, disruptive impacts from trade fluctuations will continue to increase costs while weighing on economic activity. The Bank of Canada will proceed cautiously, closely monitoring risks and uncertainties. The Bank will assess how exports evolve in the face of US tariffs and evolving trade relations; how the cost effects of trade shocks are being transmitted to consumer prices; and how inflation expectations evolve. The Bank of Canada will work to ensure public confidence in price stability and support economic growth during this period of global uncertainty, while ensuring that inflation remains well under control.